The global economy may be headed toward crisis, says star hedge fund manager Doug Kass, president of Seabreeze Partners Management.
"The current crisis has been percolating and is about to be exposed, aided by a too-lengthy period of plentiful and cheap debt that has elevated financial asset prices but has failed to trickle down to the middle class,"
he writes on his Tumblr blog.
"It is much like the real estate boom in Tokyo, the Internet stock bubble in the late 1990s and the subprime mortgage crisis that was uncovered nine years ago."
The primary causes are China's economic woes, failed monetary and fiscal policy around the world and signs of slowing profit and economic growth in the United States, Kass says. "The U.S. is about to catch the global cold, and it could morph into something more."
U.S. GDP grew 2.3 percent in the second quarter, but only 0.6 percent in the first quarter. And the Atlanta Fed's forecasting model projects just 1.3 percent growth for the third quarter.
Former Federal Reserve Chairman Alan Greenspan is concerned about the U.S. economy too.
"It's extraordinarily sluggish,"
he told Fox Business Network. "It's fundamentally being suppressed by a very low increase in productivity, in fact, close to zero, and you can't get more than a 2 percent growth rate out of those numbers."
Productivity rose at an annualized rate of just 1.3 percent in the second quarter, after falling 1.1 percent in the first quarter.
Meanwhile, the Fed has kept short-term interest rates at record lows since December 2008.
So why hasn't its massive easing program boosted the economy more? "The basic problem is that we're not getting any capital investment that significantly adds to the growth in output per hour," Greenspan said.
"The best way of looking at this whole process is the fact that the sum of gross domestic savings and entitlements has been a constant relative to GDP for 50 years. That means for every dollar increase in entitlements, you lose a dollar of savings."
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